LTV is average value per visit, multiplied by visits per year, multiplied by how many years the relationship lasts, adjusted for margin. The last two terms are where most of the value sits and where most of the guessing happens.
Getting it roughly right changes decisions more than getting it precisely right. A business that thinks a client is worth one appointment will refuse to spend to win them; the same business, knowing the client returns four times a year for three years, will happily pay for the introduction.
Use margin rather than revenue. A number built on revenue overstates what a customer is worth by exactly your cost of delivery, and that error compounds through every acquisition decision made from it.
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Frequently asked
How do I calculate LTV for a small business?
Take average spend per visit, multiply by how often a typical customer visits in a year, multiply by the number of years they usually stay, then multiply by your gross margin. If you do not know the retention figure, estimate it and mark it as an estimate rather than leaving the calculation undone.
Is LTV based on revenue or profit?
Profit. Using revenue inflates it by your entire cost of delivery, which makes every acquisition decision downstream look better than it is.
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